A statutory employee is someone who works mainly for a specific company but carries on a business on their own account. They are treated as regular employees for tax purposes, but can file deductions as if they were self-employed. Employers must correctly classify workers to avoid legal penalties. Tax authorities can provide assistance and advice.
A statutory employee is a worker who straddles the gap between being self-employed and being considered an employee. People in several occupations may be considered statutory employees for tax purposes and their taxes must be handled in a special way. Tax authorities usually provide specific information about what types of employees will be considered legal so taxpayers and employers can confirm that taxes are being handled appropriately.
A statutory employee is a person who carries on a business on his own account, but who works mainly or wholly for a specific company. Street vendors are an example of this. Agents or commission agents can be another form of statutory employee. Persons who do piecework in their homes are also classified as statutory employees for tax purposes.
When someone is considered a statutory employee, the employer treats the person as a regular employee, paying taxes on that employee’s wages and withholding for tax agencies. However, when the person files his own taxes, the statutory employee can file the deductions as if he were self-employed, even if the taxpayer does not file the self-employment tax. This recognizes that statutory employees incur expenses of a special nature in the course of their employment. The employee may also have income from other sources that is handled differently on taxes.
It can sometimes be difficult to determine whether someone should be considered a statutory employee or an independent contractor. From an employer’s perspective, an independent contractor may be easier to deal with. Independent contractors are simply paid for their work and handle all of their taxes themselves; the employer does not pay taxes to the employee, withholds taxes, and so on. However, tax authorities can crack down on employers who misclassify people as independent contractors when they are actually legal employees.
Experienced tax law attorneys can provide advice and advice to individuals who are unsure about how they should be classified, as well as provide assistance to employers who wish to confirm that the people who work for them are being managed appropriately. Tax agency representatives are also able to provide assistance to employers and individual taxpayers who wish to ensure that classifications are correct and taxes are handled properly. People won’t be penalized for making an honest mistake, but the intentional misclassification of employees can make an employer subject to legal penalties.
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